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Kerala

Business Opportunities

There are several factors that affect evolution of an industry in a
particular region. The major factors impacting evolution are:

Policy proactiveness: The policy that a state government adopts
towards a sector directly affects its attractiveness for further investment.
For example, the Government of Kerala has given many concessions to the IT
sector. This has prompted many IT majors like Infosys and TCS to set up
software development operations in the state.

Availability of natural resources:
Certain industries have a high dependence on availability of natural
resources. The predominance of cash crop cultivation has made the state a leading agro processing centre.

Capability: The growth of IT Enabled Services in the state is led by
excellent infrastructure facilities (it has the highest tele-density and two
submarine cable landings) and availability of skilled manpower (engineering
colleges in the state such as National Institute of Technology, Calicut, are
among the best in the country).

Based on an assessment of the above factors, some of the industries with
potential for investment and growth in the state are illustrated below:

This is the qualitative assessment to highlight relative interest of different
sectors.
A case by case analysis is necessary before investment is made.

Source: KPMG analysis

Key industries

Agro-based and Food processing

The food processing industry has been
recognised as a potential area for development of enterprises in the state.
Kerala is the largest producer of rubber, cocoa, pepper and areca nut. It is
also a leading producer of coconut and cashew. The state has a high proportion
of small scale industries engaged in processing its agricultural produce. Kerala
Industrial Infrastructure Development Corporation (KINFRA) set up a world-class
food park at Kakkancherry, Malappuram in 2002. Four units with a total
investment of US$ 2.5 million have started functioning at the park. The state is
home to small scale units engaged in spice mixtures, oils, oleoresins,
cosmetics, aromatics and flavouring food & beverages. Share of food & beverages
sector in the agro-based industry accounted for 2.7 per cent of the total sales
in 2003.

Coir

Coir is one of the traditional industries in the state employing 360,000
workers of which 76 per cent are women. Allappuzha, the main centre of this
industry, consists of around 10,000 tiny and small scale enterprises. Public
Sector Units (PSUs) and co­operatives (COIRFED) play a dominant role in the
state's coir industry. The Kerala State Coir Corporation and Foam Mattings India
Ltd are the two major PSUs operating in this industry. Exports of coir products
from Kerala have doubled from 30,833 tonnes in 1991-92 to 60,089 tonnes in
2002-03.

Source: Economic Review 2003

Textile and Garments

The textile sector comprising of spinning and handloom is the single largest
industry in the state. The textile industry is dominated by handlooms, which
enjoy a huge production base and account for 10 per cent of the country's
exports. Total sales of the sector accounted for 1.8 per cent of sales by
industry in the state in 2003. The handloom industry dominated by cooperative
societies, accounts for 86 per cent of the looms and produces 97 per cent of the
state's textiles.

Cotton yarn is the most popular product in the state followed by knitted
garments and fabrics such as cotton and wool. The textile-processing complex at
Kanjikode, the International Apparel Park at Thiruvananthapuram and the
Industrial Export Park at Kochi offer walk-in-and-manufacture environments.

Sea food and other marine products

The state contributes nearly half
of the country's marine fish landing of 250,000 tonnes sardines, shrimps,
lobster, cuttlefish, squid, tuna etc. These have a high demand in the overseas
markets. Ongoing technology upgradation in the export-oriented marine product
sector indicates greater growth in the immediate future.

Chemicals

The chemicals sector accounts for 63.4 per cent of the total revenue by
industry in the state. Kochi Refineries Ltd, a highly profitable enterprise, is
the main player in the sector. It has a capacity of 7 million tonnes and
provides feedstock to several ownstream projects. In addition, a large chemicals
terminal is being set up at Kochi to make imported feedstock available.

The refinery has an annual turnover of US$ 2,140 million with a net profit of
US$ 198 million. The products of the refinery include LPG, petrol, diesel,
kerosene, naptha, benzene, toluene, LSHS, furnace oil, ATF, specialty solvents,
bitumen and rubberised bitumen.

IT/ITES

The state's excellent communications infrastructure coupled with its
geographical location has made it ideal for Information Technology (IT) and IT
Enabled Services (ITES). The state is known as the 'Information Gateway' of the
country. Two infotech parks developed at Thiruvananthapuram and Kochi house
several software companies. Revenues from the IT sector stood at US$ 82.6
million in 2003 and exports were to the tune of US$ 65.1 million in the same
period. The 2,750 hardware assembling units provide employment to 2,000. About
350 small and micro software enterprises in the IT sector register a turnover of
over US$ 8.3 million.

Tourism

The tourism industry in the state accounted for 6.3 per cent of the State
Domestic Product in 2002-03. Tourist inflow in the state grew by over 1 1 per
cent, including a rise of 6 per cent in domestic traffic during 2002-03. The
tourism industry in the state was listed among the top 100 brands among 700
Indian brands studied by Super Brands Ltd. In 2002, Kerala became the first
partner state in the World Travel and Tourism Council. Revenues from the tourism
sector grew at a CAGR of 23.6 per cent during 1998-02 and stood at US$ 145 million in 2002. The industry provides employment to
700,000.

Exports

The state accounts for majority of rubber and coir based exports in the
country. It is fast emerging as an ITES hub. A number of international companies
have set up their centres located in the two IT parks at Thiruvananthapuram and
Kochi. The principal motivation for these companies to set up their centres in
the state has been the cost advantage and the excellent telecommunications infrastructure. Kochi has been rated second
best among the 'Super 9 Indian ITES Destinations' in a survey conducted by
NASSCOM in 2002. Another survey by Business Today and Gallup rates
Thiruvanathapuram as the second 'Best Indian City to do Business In' while Kochi
has been ranked third on factual parameters.

Source: Economic Review 2003

The Technopark at Thiruvananthapuram, a 1.5 million sq ft built-up space
offers reliable power supply and excellent support facilities such as conference
rooms and convention centres. The Infopark at Kochi is an ideal destination for
ITES due to its proximity to the submarine optical cables. It offers regulated
power supply, excellent telecom facilities and support functions such as
convention centres and seminar halls.

Investment*

Total investment planned in the state is US$ 12.5 billion with investment in
the infrastructure sector amounting to US$ 9 billion. Investment to the tune of
the US$ 490 million has been planned to improve facilities at the Kochi port. In
addition, investment is also being made to enhance the existing cellular network
in the state.